Earlier this week, the Pennsylvania Supreme Court issued its long-awaited decision in Dechert, upholding the Commonwealth Court's determination that canned computer software is tangible personal property, and that licenses of such software are subject to Pennsylvania sales and use tax. The Supreme Court's decision demonstrated an extreme display of deference by the court to the statutory interpretations adopted by the state's administrative agencies. This deference sets a troubling precedent for future tax cases in which taxpayers are disputing the Department of Revenue's statutory interpretations.
Dechert involved a taxpayer that had licensed canned computer software. This software had in some cases been delivered on discs or other tangible media, and in other cases was delivered electronically. The taxpayer argued that the amounts it paid for the licenses were payments for the use of copyrighted software – a form of intangible intellectual property. In contrast, the Commonwealth argued that canned software was tangible personal property, based on the 2005 decision of the Pennsylvania Commonwealth Court in Graham Packaging.
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